Commercial Litigation and Arbitration

Even After Hall Street, Court May Decline to Enforce Arbitration Award on Grounds of Public Policy

From Shaw Constructors, Inc. v. HPD, LLC, 2010 U.S. Dist. LEXIS 114598 (E.D. La. Oct. 25, 2010):

In 2008, the Supreme Court decided Hall Street Associates v. Mattel, Inc., in which it held that the statutory grounds contained in the FAA are the exclusive means by which an arbitral award may be vacated. 552 U.S. at 584. The Court did not, however, explicitly reject the manifest disregard standard, instead musing "[m]aybe the term 'manifest disregard' was meant to name a new ground for review, but maybe it merely referred to the § 10 grounds collectively, rather than adding to them....Or, as some courts have thought, 'manifest disregard' may have been shorthand for § 10(a)(3) or § 10(a)(4), the paragraphs authorizing vacatur when the arbitrators were 'guilty of misconduct' or 'exceeded their powers.'" Id. at 1404 (internal citations omitted).

In Citigroup Global Markets, Inc. v. Bacon, the Fifth Circuit considered whether or not manifest disregard survived Hall Street. 562 F.3d at 350. The court concluded that "Hall Street restricts the grounds for vacatur to those set forth in § 10 of the Federal Arbitration Act...consequently, manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA." Id. at 350. In 2010, the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds International Corporation, 130 S.Ct. 1758, 1768 n. 3 (2010), in which it stated "[w]e do not decide whether manifest disregard' survives our decision in Hall Street[.]" The Fifth Circuit has not responded to Stolt-Nielsen and therefore Bacon's refusal to recognize "manifest disregard" as a separate ground for vacatur remains the rule in this Circuit. 562 F.3d at 350.

Another non-statutory ground for vacatur that gained traction after the enactment of the FAA is that an award violates public policy. The Supreme Court in United Paperworkers International v. Misco, 484 U.S. 29 (1987), stated that a refusal to enforce an arbitral award which is against public policy is "a specific application of the more general doctrine, rooted in the common law, that a court may refuse to enforce contracts that violate law or public policy." Id. at 42, citing W.R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983). In the Fifth Circuit, "[a]lthough the public policy exception to our usual deference is not to be invoked lightly, a court may exercise its judicial power to abrogate a private agreement when, for example, it gives short shrift to the public's important yet unrepresented interests." Gulf Coast Industrial Workers Union v. Exxon Co. U.S.A., 991 F.2d 244, 249 (5th Cir. 1993). The public policy exception can be invoked only when that public policy is "explicit, well defined, and dominant." Prestige Ford v. Ford Dealer Computer Services, Inc., 324 F.3d 391, 396 (5th Cir. 2003)(overruled on other grounds), quoting W.R. Grace & Co., 461 U.S. at 766 (internal quotations omitted).

To determine if an arbitral award violates public policy, the Court must "review existing laws and legal precedents in order to demonstrate that they establish a well-defined and dominant policy." Continental Airlines, Inc. v. Air Line Pilots Ass'n, Intern., 555 F.3d 399, 416 (5th Cir. 2009).

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